Fisher v. A.G. Becker Paribas Inc.

Decision Date06 June 1986
Docket NumberNo. 85-3962,85-3962
Citation791 F.2d 691
PartiesBlue Sky L. Rep. P 72,426, Fed. Sec. L. Rep. P 92,774 George B. FISHER, IV, Ellen R. Fisher, and Omnisports, a partnership, d/b/a the Snug Company, Plaintiffs-Appellees. v. A.G. BECKER PARIBAS INCORPORATION A Delaware corporation, Defendant-Appellant.
CourtU.S. Court of Appeals — Ninth Circuit

Charles F. Brega, Stuart N. Bennett, Roath & Brega, Denver, Colo., for plaintiffs-appellees.

Todd E. Gordinier, Briane Nelson Mitchell, Paul, Hastings, Janofsky & Walker, Los Angeles, Cal., for defendant-appellant.

Appeal from the United States District Court for the District of Idaho.

Before: SKOPIL, ALARCON, and WIGGINS, Circuit Judges.

ALARCON, Circuit Judge:

Defendant-appellant A.G. Becker Paribas, Inc. (hereinafter Becker) appeals the district court's denial of Becker's Motion for Stay and to Compel Arbitration. We have jurisdiction over this appeal pursuant to 28 U.S.C. Sec. 1292(a)(1).

We must decide whether, in an action involving alleged federal securities law violations and common law claims, a defendant's decision not to file a motion to compel compliance with a contractual agreement to arbitrate all disputes made prior to the Supreme Court's rejection of the intertwining doctrine in Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985), constituted a waiver of the right to arbitration. We have concluded that no waiver occurred because Becker did not act inconsistently with the contractual right to seek arbitration. Becker was entitled to rely on the intertwining doctrine and the observation by this court in De Lancie v. Birr, Wilson & Co., 648 F.2d 1255, 1259 n. 4 (9th Cir.1981) that arbitration should be denied where common law claims are intertwined with securities law violations, in deciding that it would be futile to file a motion to compel arbitration. We have also determined that Fisher has failed to show that it has been prejudiced by the delay in the filing of the motion to compel arbitration.

I. FACTS

In September, 1980, plaintiffs-appellees George Fisher, Ellen Fisher and Omnisports (hereinafter the Fishers) established three general margin accounts with Becker, a stock brokerage firm. The Fishers signed a number of agreements to open the accounts, each of which contains the following or similar language: "It is agreed that any controversy between us arising out of your business or this agreement shall be submitted to arbitration...."

The Fishers claim that from October of 1980 to June of 1981, Becker executed several unauthorized purchases of stock in Felmont Oil Corp. and failed to execute numerous requested sales of the same stock. The Fishers allege that as a result of Becker's alleged mismanagement of the Fishers' accounts, they lost approximately $2,360,000.

The Fishers did not seek arbitration of their claims against Becker as required by the mandatory language of the arbitration clause. Instead, they filed this action in the United States District Court of Idaho on August 21, 1981, shortly after we decided De Lancie, 648 F.2d 1255, on June 26, 1981.

The complaint alleged violations of federal securities laws as well as pendent state securities and common law claims. 1 Becker filed its answer on October 28, 1981, and raised several affirmative defenses. Becker did not raise arbitration as an affirmative defense. For the ensuing 3 1/2 years, both parties filed pretrial motions and engaged in extensive discovery.

Becker did not file a motion to compel arbitration at the time the answer was prepared because Becker's attorney concluded that "given the state of the law at that time, a motion to compel arbitration would not be successful and would be a futile gesture." Affidavit of William B. Campbell p 3. No evidence was offered by the Fishers to rebut or impeach Mr. Campbell's affidavit.

The district court orally denied Becker's motion to compel arbitration on the grounds that "there's been a knowing waiver of a right here and they've been prejudiced by it." The district court declined to reach the question whether the Rule 10b-5 claim is arbitrable.

II. STANDARD OF REVIEW

Where, as here, the concern is whether the undisputed facts of defendant's pretrial participation in the litigation satisfy the standard for waiver, the question of waiver of arbitration is one of law which we review de novo. Rush v. Oppenheimer & Co., 779 F.2d 885, 887 (2d Cir.1985).

III. DISCUSSION

Becker seeks reversal of the district court's order denying its motion to compel arbitration on the following grounds:

One. The right to compel arbitration where state law claims and federal securities claims are intertwined did not exist until the Supreme Court's decision in Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985).

Two. The record does not show that Becker intentionally relinquished an existing right to compel arbitration.

Three. The Fishers failed to establish that they were prejudiced by Becker's assertion of its right to compel arbitration more than three years after the action was filed.

A. Test for Waiver

Waiver of a contractual right to arbitration is not favored. Lake Communications, Inc. v. ICC Corp., 738 F.2d 1473, 1477 (9th Cir.1984); Shinto Shipping Co., Ltd. v. Fibrex & Shipping Co., 572 F.2d 1328, 1330 (9th Cir.1978). Any examination of whether the right to compel arbitration has been waived must be conducted in light of the strong federal policy favoring enforcement of arbitration agreements. See Moses H. Cone Hospital v. Mercury Construction Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 941-42, 74 L.Ed.2d 765 (1983) (as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the issue is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability); Shinto Shipping, 572 F.2d at 1330 (waiver is not favored and the facts must be viewed in light of the strong federal policy supporting arbitration agreements). See also Byrd, 105 S.Ct. at 1242 (the purpose of the Arbitration Act was to ensure judicial enforcement of privately made agreements to arbitrate). Because waiver of the right to arbitration is disfavored, "any party arguing waiver of arbitration bears a heavy burden of proof." Belke v. Merrill Lynch, Pierce, Fenner & Smith, 693 F.2d 1023, 1025 (11th Cir.1982); Brown v. E.F. Hutton & Co., Inc., 610 F.Supp. 76, 79 (S.D.Fla.1985).

A party seeking to prove waiver of a right to arbitration must demonstrate: (1) knowledge of an existing right to compel arbitration; (2) acts inconsistent with that existing right; and (3) prejudice to the party opposing arbitration resulting from such inconsistent acts. See Shinto Shipping, 572 F.2d at 1330 (the court "must be convinced not only that the appellee acted inconsistently with that arbitration right, but that the appellant was prejudiced by this action before we can find a waiver"). See also Lake Communications, 738 F.2d at 1477 ("More is required than action inconsistent with an arbitration provision; prejudice to the party opposing arbitration must also be shown."); ATSA of California, Inc. v. Continental Insurance Co., 702 F.2d 172, 175 (9th Cir.1983) (inconsistent behavior alone is not sufficient; the party opposing arbitration must have suffered prejudice), amended, 754 F.2d 1394 (1985).

B. Acts Inconsistent with an Existing Right to Arbitration

Becker's primary contention on appeal is that it could not have waived its right to arbitration because it did not have an enforceable right to arbitration until the Supreme Court rejected the intertwining doctrine in Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985). Becker argues that it would have been futile to file a motion to compel arbitration prior to the Byrd decision because this court had previously indicated its approval of the intertwining doctrine in De Lancie v. Birr, Wilson & Co., 648 F.2d at 1259 n. 4. In footnote 4 of De Lancie, we stated as follows:

We note that even if the January 1978 transactions were considered arbitrable, the court could apply a variation of the "doctrine of intertwining" to hear the entire claim in district court. That doctrine, applied primarily in the Fifth Circuit, is "an important judicially-created exception ... carved out of [the Arbitration Act's] proarbitration scheme." Miley v. Oppenheimer & Co., 637 F.2d 318 334 (5th Cir.1981). The doctrine holds that "when it is impractical if not impossible to separate out nonarbitrable from arbitrable contract claims, a court should deny arbitration in order to preserve its exclusive jurisdiction over federal securities claims." Id. at 335, quoting Sibley v. Tandy Corp., 543 F.2d 540, 543 (5th Cir.1976), cert. denied, 434 U.S. 824, 98 S.Ct. 71, 54 L.Ed.2d 82 (1977).

The Fishers do not dispute Becker's contention that waiver cannot be shown where the agreement of the parties to arbitrate all disputes arising out of the contract is unenforceable. Instead, the Fishers assert that "Becker clearly had the right to seek arbitration of the Fishers' claims against it from the time the complaint was filed until 1984, when the Ninth Circuit finally adopted the intertwining doctrine ...." Appellees' brief, page 12.

What the Fishers' argument ignores, however, is that Becker properly perceived that it was futile to file a motion to compel arbitration until Byrd was decided. Until the Supreme Court rejected the intertwining doctrine, most federal courts had concluded that when arbitrable and nonarbitrable claims arise out of the same transaction, and are sufficiently intertwined factually and legally, the district court should deny arbitration as to the arbitrable claims in order to protect the jurisdiction of the federal court and avoid any possible preclusive effect.

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